Market Watch

QUOTE OF THE WEEK… “One who stops being better stops being good.” –Oliver Cromwell, English military and political leader

INFO THAT HITS US WHERE WE LIVE… Last week, we who work in the housing market were given more opportunity to be better, as February Housing Starts dipped 0.2%, to an annual rate of 907,000 units. But wait, as they say on the infomercials. All the dip camp from multi-family units. Single-family starts were actually UP 0.3%. With the ground frozen or snow covered in much of the country, builders still stayed busy inside. As evidence, completions shot up 4.4% in February and are up 21.9% over a year ago. Anticipating a good spring, builders pushed Building Permits up 7.7% in February.

The 4-month moving average for Housing Starts is the highest since July 2008. Some economists feel the underlying trend for home building is upward and should remain that way for a couple of years. February, however, saw Existing Home Sales dip 0.4%, to a 4.60 million annual rate. But these closings came from contracts signed when harsh weather was slowing many markets. A lack of inventory has also been sending buyers to new homes. But median prices are up 9.1% annually, encouraging more sellers to list, and inventories were up 120,000 units in February, so existing home sales should rebound in March and April.

BUSINESS TIP OF THE WEEK… Treat each client as if she were your only client. When you’re working for her, focus on solving the problem at hand and tune everything else out.
>> Review of Last Week

FED, UP… Two words are all it takes to recap the week’s financial highlights. The Federal Reserve met and the three major stock indexes ended the week up. Following her first meeting as Fed Chair, Janet Yellen hinted that the central bank could start raising rates six months after its bond-buying program ends, which is still a long way off. But there will be no key data point to trigger a rate hike. Instead, Yellen said the bank would use a “wide range of information,” including data on jobs, inflation, and the financial markets. This disturbed investors, who don’t like to see the Fed exercising its judgment without clear guideposts.

However, enough positive economic data came in to keep Wall Street players pushing equity prices up. The Philadelphia Fed and NY Empire indexes, measuring manufacturing sentiment in those regions, both topped forecasts. Industrial Production and Building Permits also beat estimates. Misses included February Housing Starts. It was also disappointing to see Weekly Initial Unemployment claims edge up by 5,000, to 320,000, while Continuing Unemployment Claims drifted up to 2.889 million.

The week ended with the Dow up 1.5%, to 16303; the S&P 500 up 1.4%, to 1866; and the Nasdaq up 0.7%, to 4277.

The Fed tapered its bond buying by another $10 billion, and this reduction in demand sent bond prices south. The FNMA 3.5% bond we watch finished the week down .87, to $100.15. Freddie Mac’s Primary Mortgage Market Survey saw national average fixed mortgage rates drop a little during the week ending March 20. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information.

DID YOU KNOW?… When the U.S. had a bubble in housing in 2003–2005, 30-year mortgage rates averaged 5.8%. Even though rates have edged up in the past year, they’re still nowhere near that level today.
>> This Week’s Forecast

NEW HOME SALES AND PENDING HOME SALES SLIP, GDP SOFT, INFLATION OK… It’s expected that both New Home Sales and Pending Home Sales will be down a tad for February, two more data points diminished by the winter weather, no doubt. The GDP, 3rd Estimate, is forecast to show U.S. economic growth was still slow in Q4, well under 3%. At least inflation is predicted to remain benign, Core PCE Prices holding at 0.1%.
>> The Week’s Economic Indicator Calendar

Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Economic Calendar for the Week of Mar 24 – Mar 28

Date
Time (ET)
Release
For
Consensus
Prior
Impact
Tu
Mar 25
10:00
Consumer Confidence
Mar
78.2
78.1
Moderate
Tu
Mar 25
10:00
New Home Sales
Feb
445K
468K
Moderate
W
Mar 26
08:30
Durable Goods Orders
Feb
1.0%
–1.0%
Moderate
W
Mar 26
10:30
Crude Inventories
3/22
NA
5.850M
Moderate
Th
Mar 27
08:30
Initial Unemployment Claims
3/22
330K
320K
Moderate
Th
Mar 27
08:30
Continuing Unemployment Claims
3/15
2.900M
2.889M
Moderate
Th
Mar 27
08:30
GDP – 3rd Estimate
Q4
2.6%
2.4%
Moderate
Th
Mar 27
08:30
GDP Deflator – 3rd Estimate
Q4
1.6%
1.6%
Moderate
Th
Mar 27
10:00
Pending Home Sales
Feb
–0.2%
0.1%
Moderate
F
Mar 28
08:30
Personal Income
Feb
0.2%
0.3%
Moderate
F
Mar 28
08:30
Personal Spending
Feb
0.3%
0.4%
HIGH
F
Mar 28
08:30
PCE Prices – Core
Feb
0.1%
0.1%
HIGH
F
Mar 28
09:55
U. of Michigan Consumer Sentiment – Final
Mar
80.0
79.9
Moderate

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… Last week Fed Chair Janet Yellen’s comments led many economists to believe the central bank might start raising interest rates by the middle of 2015. That’s still more than a year away. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.

Current Fed Funds Rate: 0%–0.25%

After FOMC meeting on:
Consensus
Apr 30
0%–0.25%
Jun 18
0%–0.25%
Jul 30
0%–0.25%

Probability of change from current policy:

After FOMC meeting on:
Consensus
Apr 30
<1%
Jun 18
<1%
Jul 30
<1%